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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999
BRISTOL HOTELS & RESORTS
14295 Midway Road
Addison, Texas 75001
(972) 391-3910
Commission File No. 1-14047
Incorporated in Delaware IRS No. 75-2754805
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Par Value $.01 per share New York Stock Exchange
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The Company (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days.
The number of shares of common stock, par value $.01 per share,
outstanding at May 9, 1999 was 17,778,815.
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BRISTOL HOTELS & RESORTS
INDEX
PART I. FINANCIAL INFORMATION. PAGE NO.
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Item 1. Financial Statements:
Bristol Hotels & Resorts
Consolidated Statement of Income for the three months
ended March 31, 1999................................................................ 3
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998.................................................................... 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1999................................................................ 5
Notes to Consolidated Financial Statements............................................. 6
Bristol Hotel Company (Predecessor)
Consolidated Statement of Income for the three months
ended March 31, 1998................................................................ 8
Consolidated Statement of Cash Flows for the three months
ended March 31, 1998................................................................ 9
Notes to Consolidated Financial Statements............................................. 10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................................... 11
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K....................................................... 16
SIGNATURE................................................................................................ 17
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BRISTOL HOTELS & RESORTS
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Unaudited, in thousands except per share amounts)
REVENUE
Rooms ................................................................. $ 131,699
Food and beverage ..................................................... 33,203
Management fees ....................................................... 937
Construction management fees .......................................... 1,382
Other ................................................................. 8,993
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Total revenue .............................................. 176,214
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OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms ............................................................. 38,216
Food and beverage ................................................. 25,850
Other operating departments ....................................... 3,429
Undistributed operating expenses:
Administrative and general ........................................ 17,708
Marketing ......................................................... 14,028
Property occupancy costs .......................................... 16,046
Tenant lease expense .............................................. 52,113
Depreciation and amortization ..................................... 658
Corporate expense ................................................. 6,546
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Operating income .......................................................... 1,620
Interest income, net ...................................................... 225
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Income before income taxes ................................................ 1,845
Provision for income taxes ................................................ 729
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NET INCOME ................................................................ $ 1,116
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Earnings per common and common equivalent share:
Net income:
Basic ............................................................. $ 0.06
Diluted ........................................................... 0.06
Weighted average number of common and common
equivalent shares outstanding:
Basic ............................................................. 17,779
Diluted ........................................................... 18,054
The accompanying notes are an integral part of these
consolidated financial statements.
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BRISTOL HOTELS & RESORTS
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(Dollars in thousands)
March 31, December 31,
1999 1998
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ASSETS (Unaudited)
Current assets
Cash and cash equivalents ................................ $ 30,191 $ 24,916
Accounts receivable, net ................................. 35,687 35,329
Prepaid rent ............................................. 13,751 11,042
Inventory ................................................ 9,962 9,612
Notes receivable - FelCor ................................ 5,382 9,100
Deposits and other current assets ........................ 6,325 6,144
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Total current assets .......................... 101,298 96,143
Property and equipment, net .................................. 6,659 5,889
Investment in joint venture .................................. 678 --
Investments in management contracts, net ..................... 1,903 1,962
Deferred charges and other non-current assets, net ........... 1,504 1,528
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Total assets .................................. $ 112,042 $ 105,522
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses .................... $ 44,865 $ 41,641
Accrued occupancy, sales and use taxes ................... 7,915 6,512
Accrued rent ............................................. 8,689 8,498
Accrued insurance reserves ............................... 6,559 6,511
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Total current liabilities ..................... 68,028 63,162
Deferred income taxes ........................................ 1,354 1,376
Other liabilities ............................................ 6,037 5,575
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Total liabilities ............................. 75,419 70,113
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Common stock ($.01 par value; 100,000,000 shares
authorized, 31,957,919 shares issued, and 17,779,515
and 17,778,315 shares outstanding at March 31, 1999, and
and December 31, 1998, respectively) ...................... 228 228
Additional paid-in capital ................................... 57,258 57,160
Cumulative translation adjustment ............................ 12 12
Treasury stock, at cost (5,065,409 shares) ................... (24,636) (24,636)
Retained earnings ............................................ 3,761 2,645
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Total stockholders' equity .................... 36,623 35,409
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Total liabilities and stockholders' equity .... $ 112,042 $ 105,522
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The accompanying notes are an integral part of these
consolidated financial statements.
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BRISTOL HOTELS & RESORTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Unaudited, dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 1,116
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 658
Amortization of deferred financing fees ...................... 73
Compensation expense recognized for employee
stock options ............................................. 91
Changes in working capital ....................................... 1,193
Increase in other liabilities .................................... 462
Deferred tax provision ........................................... (22)
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Cash provided by operating activities ..................... 3,571
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CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment ........................... (1,362)
Investment in joint venture ...................................... (678)
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Cash used in investing activities ......................... (2,040)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred charges and other non-current assets ........ 18
Proceeds from repayment of FelCor Notes, net ..................... 3,718
Proceeds from exercise of employee stock options ................. 8
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Cash provided by financing activities ..................... 3,744
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Net increase in cash and cash equivalents ............................ 5,275
Cash and cash equivalents at beginning of period ..................... 24,916
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Cash and cash equivalents at end of period ........................... $ 30,191
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The accompanying notes are an integral part of these
consolidated financial statements.
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BRISTOL HOTELS & RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
Bristol Hotels & Resorts (together with its subsidiaries, the
"Company") is a Delaware corporation which was incorporated on March
20, 1998, and began operations on May 20, 1998, as a subsidiary of
Bristol Hotel Company ("BHC"). The Company was spun off from BHC (the
"Spin-off") in connection with the merger of BHC with FelCor Lodging
Trust Incorporated ("FelCor") on July 27, 1998, and began trading on
July 28, 1998, as a separate publicly traded company.
The Company is one of the leading independent hotel operating companies
in the United States, operating 118 primarily full-service hotels (as
of March 31, 1999) in the upscale and midscale segments of the hotel
industry containing approximately 31,600 rooms, of which 102 hotels are
operated under the long-term leases with FelCor. The Company operates
hotels in 27 states, Canada and the District of Columbia, with 30
hotels in Texas, 12 hotels in California and 10 hotels in Georgia. The
Company operates the largest number of Bass Hotels & Resorts branded
hotels in the world, including Crowne Plaza, Holiday Inn, Holiday Inn
Select and Holiday Inn Express hotels. The Company also operates 20
hotels under other hotel brands, including Sheraton Four Points,
Hampton Inn, Homewood Suites, Courtyard by Marriott and Fairfield Inn.
2. BASIS OF PRESENTATION
The consolidated balance sheet at December 31, 1998, has been derived
from the audited balance sheet at that date. The consolidated balance
sheet at March 31, 1999, and the consolidated statements of income and
cash flows for the three months ended March 31, 1999, have been
prepared by the Company and are unaudited. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly, in all material respects, the
financial position of the Company as of March 31, 1999, and the results
of operations and cash flows for the three months ended March 31, 1999,
have been made. Interim results are not necessarily indicative of
fiscal year performance because of seasonal and short-term variations.
The Company had no operations from March 20, 1998, through May 19,
1998. Operations began on May 20, 1998, with the lease of the Hampton
Inn - Las Vegas. From May 20, 1998, to July 28, 1998, the Company's
sole asset was the leasehold interest in the Hampton Inn - Las Vegas;
therefore, no statements of operations or cash flows for the three
months ended March 31, 1998, are presented for the Company.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company
believes the disclosures made are adequate to make the information
presented not misleading. However, the consolidated financial
statements contained in this report should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1998.
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BRISTOL HOTELS & RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. ACQUISITION OF JOINT VENTURE INTEREST
On January 5, 1999, the Company acquired a 15% interest in the Bristol
Hudson J.V., which owns the Cambridge Inn in Cambridge, Massachusetts.
The Company's initial investment in the joint venture was approximately
$645,000. A subsidiary of the Company will manage the property for the
joint venture. The property was rebranded to a Holiday Inn Express on
April 1, 1999.
4. FELCOR NOTES
As a result of the Spin-off and related settlements with FelCor, the
Company has a note receivable from FelCor. The note bears interest at a
monthly LIBOR rate plus 150 basis points (6.47% as of March 31, 1999),
and is due upon five days' notice from the Company. On February 1,
1999, the Company requested and received $5.0 million of this note
amount.
At the end of the first quarter of 1999, FelCor executed an additional
note for amounts due to a Canadian subsidiary of the Company of
approximately $1.3 million. This note bears interest at a monthly LIBOR
rate plus 130 basis points (6.27% as of March 31, 1999), and is due
upon five days' notice from the Company. As a result of these
transactions, the balance of notes receivable from FelCor
(collectively, the "FelCor Notes") was $5.4 million as of March 31,
1999.
5. EARNINGS PER SHARE
The following table reconciles the computation of basic earnings per
share to diluted earnings per share for the three months ended March
31, 1999:
Per Share
Net Income Shares Amount
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($ in thousands)
Net income per share ........................ $ 1,116 17,778,715 $ 0.06
Effect of options ........................... -- 275,759 --
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Net income per share, assuming dilution ..... $ 1,116 18,054,474 $ 0.06
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Outstanding options to purchase shares of common stock, where the
options' exercise prices were greater than the average market price of
the common shares for the time reported, must be excluded from the
above computation of diluted weighted average outstanding shares. For
the three months ended March 31, 1999, 151,312 options were excluded.
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BRISTOL HOTEL COMPANY (PREDECESSOR)
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited, in thousands except per share amounts)
REVENUE
Rooms .............................................. $ 120,372
Food and beverage .................................. 28,050
Management fees .................................... 1,516
Other .............................................. 8,864
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Total revenue .............................. 158,802
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OPERATING COSTS AND EXPENSES
Departmental expenses:
Rooms ........................................... 33,424
Food and beverage ............................... 21,239
Other ........................................... 2,455
Undistributed operating expenses:
Administrative and general ...................... 15,737
Marketing ....................................... 11,380
Property occupancy costs ........................ 24,474
Depreciation and amortization ................... 12,906
Corporate expense ............................... 6,290
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Operating income ...................................... 30,897
Other (income) expense:
Interest expense ................................... 12,513
Equity in income of joint ventures ................. (554)
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Income before income taxes ............................ 18,938
Income taxes .......................................... 7,576
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Net income ............................................ $ 11,362
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Earnings per common and common equivalent share:
Net income
Basic ........................................... $ 0.26
Diluted ......................................... $ 0.26
Weighted average number of common and common
equivalent shares outstanding:
Basic ........................................... 43,719
Diluted ......................................... 44,535
The accompanying notes are an integral part of these
consolidated financial statements.
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BRISTOL HOTELS COMPANY (PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited, dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 11,362
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................ 12,906
Amortization of deferred financing costs ..................... 1,257
Equity in earnings of joint ventures ......................... (554)
Non-cash portion of foreign currency translation ............. 120
Compensation expense recognized for employee stock options ... 73
Changes in working capital ....................................... 7,413
Increase in advance deposits ..................................... 714
Decrease in restricted cash ...................................... 613
Deferred income tax provision .................................... 1,221
Distribution from joint ventures ................................. 175
Decrease in other liabilities .................................... (9)
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Cash provided by operating activities ..................... 35,291
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CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment ........................... (40,820)
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Cash used in investing activities ......................... (40,820)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt ..................................... (2,429)
Proceeds from exercise of employee stock options ................. 1,523
Increase in deferred charges and other non-current assets ........ (83)
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Cash used in financing activities ......................... (989)
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Net decrease in cash and cash equivalents ............................ (6,518)
Cash and cash equivalents at beginning of period ..................... 86,167
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Cash and cash equivalents at end of period ........................... $ 79,649
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The accompanying notes are an integral part of these
consolidated financial statements.
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BRISTOL HOTEL COMPANY (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Bristol Hotel Company (the "Predecessor" or "BHC") was a Delaware
corporation which was incorporated in November 1994 and began
operations after the acquisitions of Harvey Hotel Company, Ltd. and its
subsidiaries and United Inns, Inc. At March 31, 1998, the Predecessor
owned 86 hotels and managed 15 additional hotels, two of which were
owned by joint ventures in which the Predecessor owned a 50% interest.
The properties, which contain approximately 28,800 rooms, are located
in 22 states, the District of Columbia and Canada.
The consolidated statements of income and cash flows for the three
months ended March 31, 1998, have been prepared by the Predecessor and
are unaudited. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly,
in all material respects, the results of operations and cash flows for
the three months ended March 31, 1998, have been made. Interim results
are not necessarily indicative of fiscal year performance because of
seasonal and short-term variations.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Predecessor
believes the disclosures made are adequate to make the information
presented not misleading. However, the consolidated financial
statements contained in this report should be read in conjunction with
the consolidated financial statements and notes thereto included in
Bristol Hotels & Resorts' Annual Report on Form 10-K for the year ended
December 31, 1998.
2. EARNINGS PER SHARE
The following table reconciles the computation of basic earnings per
share to diluted earnings per share for the three months ended March
31, 1998:
Per Share
Net Income Shares Amount
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($ in thousands)
Net income per share ......................... $ 11,362 43,718,751 $ 0.26
Effect of options ............................ -- 816,522 --
---------------- ---------------- ----------------
Net income per share, assuming dilution ...... $ 11,362 44,535,273 $ 0.26
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Outstanding options to purchase shares of common stock, where the
options' exercise prices were greater than the average market price of
the common shares for the time reported, must be excluded from the
above computation of diluted weighted average outstanding shares. For
the three months ended March 31, 1998, 337,500 options were excluded.
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BRISTOL HOTELS & RESORTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements and
information that are based on the Company's current views and assumptions
concerning future events. Forward-looking statements are typically identified by
the words "believe," "expect," "anticipate," "intend," "estimate," "project" and
similar expressions. These statements are subject to risks and uncertainties
that could cause the Company's actual operations and results of operations to
differ materially from those reflected in such forward-looking statements.
Forward-looking statements are not guarantees of future performance and are
subject to the Company achieving its business strategy and the costs and
expected benefits of that strategy and having sufficient cash flow and other
sources of cash to fund its lease payments, debt service requirements, working
capital needs and other significant expenditures. Forward-looking statements are
also based on what the Company anticipates future trends in the lodging industry
will be and how those will be affected by industry capacity, the seasonal nature
of the lodging industry, product demand and pricing and the other matters
referred to from time to time in the Company's filings with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly release
the results of any revisions to these forward looking statements that may be
made to reflect any future events or circumstances.
OVERVIEW
BRISTOL HOTELS & RESORTS
Results of operations for the three months ended March 31, 1999, reflect the
operations of the Company's leased hotels (103 hotels as of March 31, 1999) and
those hotels operated under management contracts, of which there were 15 as of
the end of the period.
BRISTOL HOTEL COMPANY (PREDECESSOR)
Historical results for the three months ended March 31, 1998, reflect the
operations of the 86 hotels owned by the Predecessor as of March 31, 1998, and
the joint venture ownership and/or management of 15 additional hotels.
REDEVELOPMENT AND REBRANDING PROGRAM
The Redevelopment and Rebranding Program started by BHC in November 1997 and
continued by the Company impacted both the Company's and the Predecessor's
operating results. The Redevelopment and Rebranding Program entails exterior and
interior reconstruction of and renovations to a substantial number of hotels as
well as the rebranding of certain hotels operated under the Company's own brand
names. In addition to the renovations, the Company expects to rebrand 19 hotels
to the Crowne Plaza or Crowne Plaza Suites brand by the end of 2000. During the
first quarter of 1998, the rebranding of one property to a Crowne Plaza was
completed. In total, 15 hotels containing 5,127 rooms were under redevelopment
in the first quarter of 1998. By the first quarter of 1999, the Company had
completed the conversion of 15 hotels to the Crowne Plaza brand. There were 19
hotels containing 6,026 rooms under redevelopment in the first quarter of 1999,
four of which will be rebranded to the Crowne Plaza brand. The Redevelopment and
Rebranding Program is expected to be substantially complete by the end of 2000.
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STATISTICAL SUMMARY
The following chart reflects the operations of comparable hotels ("Same Store
Hotels"), which are hotels that were operated by the Company and its Predecessor
during both periods presented, and excluding three hotels that are being
marketed for sale by the owner. This information is presented on a pro forma
basis, as if the acquisition of 20 Midwestern hotels on April 30, 1998 had
occurred on January 1 of each period presented.
1ST QUARTER 1999 1ST QUARTER 1998
-------------------------------- ------------------------------ OCC RATE REVPAR
OCC RATE REVPAR OCC RATE REVPAR CHG.(PPT) % CHG. % CHG.
------ -------- -------- ------ ------- ------- --------- ------ -------
SAME STORE HOTELS(1)
Leased(2) 65.1% $ 81.90 $ 53.36 67.0% $ 78.72 $ 52.76 -1.9% 4.0% 1.1%
Managed(3) 67.4% $ 82.67 $ 55.68 71.3% $ 78.56 $ 56.04 -3.9% 5.2% -0.6%
1998 REDEVELOPMENT
Leased(2) 69.7% $101.48 $ 70.72 63.0% $ 89.70 $ 56.53 6.7% 13.1% 25.1%
1999 REDEVELOPMENT
Leased(2) 49.0% $ 84.95 $ 41.66 68.8% $ 76.81 $ 52.87 -19.8% 10.6% -21.2%
TOTAL
Leased(2) 62.4% $ 86.67 $ 54.05 66.6% $ 80.29 $ 53.51 -4.2% 7.9% 1.0%
Managed(3) 67.4% $ 82.67 $ 55.68 71.3% $ 78.56 $ 56.04 -3.9% 5.2% -0.6%
NOTES
(1) Same Store Hotels excludes hotels undergoing renovation during the
first quarter 1998 or 1999.
(2) Canadian assets have been adjusted to remove the effect of
period-to-period exchange rate fluctuations.
(3) Excludes recently terminated contracts and those that are being
marketed for sale by the owner (seven assets in total).
The hotels which were under redevelopment in the first quarter of 1998 have
shown significant improvements for the first quarter of 1999 compared to the
same period in 1998 as detailed above. The improvement in the hotels redeveloped
in 1998 is offset by the disruptions caused by the Redevelopment and Rebranding
Program to the 19 properties undergoing redevelopment during the first quarter
of 1999. In the first quarter of 1999, 5.3% of total available rooms, totaling
approximately 149,400 rooms nights, were out of service as a result of the
Redevelopment and Rebranding Program. Several of these hotels are located in
major markets such as Chicago, Illinois; Orlando, Tampa and Cocoa Beach,
Florida; Pittsburgh and Philadelphia, Pennsylvania; and San Francisco,
California.
RESULTS OF OPERATIONS
BRISTOL HOTELS & RESORTS
Three Months Ended March 31, 1999
Rooms revenue was $131.7 million for the three months ended March 31, 1999.
Rooms profit margin was 71.0% for the period. Approximately 59.4% of the
Company's room revenue was generated from individual business and leisure
customers.
Food and beverage revenue was $33.2 million for the three months ended March 31,
1999. Food and beverage profit margin was 22.1% during the period. Approximately
67.8% of the Company's food and beverage revenue was generated from its banquet
and catering operations.
Management fee income was $937,000 for the quarter ended March 31, 1999. The
Company had 15 management contracts as of March 31, 1999. This total includes
the Cambridge Inn, which is owned by an entity in which the Company has a 15%
interest, and the Hampton Inn - Sault Ste. Marie, Michigan, which the Company
began operating on March 1, 1999.
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Construction management fees for the three months ended March 31, 1999, were
$1.4 million. These fees are charged to hotel owners for purchasing and project
management services provided by the Company for construction projects, including
the Redevelopment and Rebranding Program, calculated as a percentage of total
costs. During the quarter ended March 31, 1999, 19 hotels were undergoing
redevelopment.
Property occupancy costs include normal hotel operating costs, but do not
include property taxes, ground rent and property insurance. Under the terms of
the leases, these costs are the responsibility of the hotel owner. Property
occupancy costs were $16.0 million for the three months ended March 31, 1999. Of
this amount, approximately $7.4 million represented utility costs.
Corporate expense was $6.5 million for the three months ended March 31, 1999.
This amount includes the costs of the Company's support functions at its
corporate office, public company costs such as stock exchange fees and costs
related to corporate development and growth opportunities.
Tenant lease expense was $52.1 million for the three months ended March 31,
1999. This amount represents lease payments to property owners (primarily
FelCor) under long-term lease agreements.
EBITDA (earnings before interest, taxes, depreciation and amortization) was $2.3
million for the three months ended March 31, 1999. EBITDA margin (EBITDA divided
by total revenues) was 1.3% for the period. Net income was $1.1 million for the
three months ended March 31, 1999.
BRISTOL HOTEL COMPANY (PREDECESSOR)
Three Months Ended March 31, 1998
Rooms revenue was $120.4 million for the quarter ended March 31, 1998. Rooms
profit margin was $72.2% for the period. During the three months ended March 31,
1998, the Predecessor had approximately 85,000 room nights out-of-service or
approximately 3.8% of the total available due to the Redevelopment and
Rebranding Program.
Food and beverage revenue was $28.1 million for the three months ended March 31,
1998. Food and beverage profit margin was 24.3% for the period.
Management fee income was $1.5 million for the three months ended March 31,
1998. The Predecessor had 15 management contracts during the period, including
two contracts for properties owned by entities in which the Predecessor held a
50% joint venture interest.
Property occupancy costs of approximately $24.5 million for the three months
ended March 31, 1998, include normal hotel operating costs, as well as property
tax, ground rent and property insurance.
Depreciation and amortization was $12.9 million for the three months ended March
31, 1998. This amount included the depreciation of all of the Predecessor's
hotels and their furnishings, as well as the property and equipment in the
Predecessor's corporate office.
Interest expense was $12.5 million for the three months ended March 31, 1998.
This amount is attributable to the Predecessor's approximately $714.9 million of
debt outstanding as of March 31, 1998.
Income of joint ventures of $554,000 for the quarter ended March 31, 1998
reflected the Predecessor's 50% interest in the earnings of two joint ventures.
EBITDA was $44.4 million and EBITDA margin was 27.9% for the three months ended
March 31, 1998. Net income was $11.4 million for the period.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash flow from
operations and borrowings under the $40 million revolving credit facility led by
Bankers Trust Company (the "Credit Facility"). The Company had approximately
$30.2 million of cash on hand at March 31, 1999. The Company believes that it
currently requires approximately $10 million to $15 million of cash to fund its
day-to-day working capital needs.
The Company's operations generated approximately $3.6 million of cash flow for
the three months ended March 31, 1999. The Company's cash flows are sensitive to
the performance of the leased and managed properties. For managed properties,
the Company's cash flows are principally tied to changes in the gross revenues
of the properties. For leased properties, the Company is impacted both by
changes in gross revenues as well as changes in operating expenses and rent
expense. Rent expense is paid principally as a percentage of gross revenues and
is largely tied to room revenue volume. Room revenue increases or decreases
caused by changes in room rates have only a minor impact on operating expenses,
as compared to revenue increases or decreases generated by changes in occupancy,
which also can produce significant changes in operating costs. As a result, the
Company's cash flows are more directly impacted by revenue increases or
decreases caused by changes in average room rates. Increased revenues caused by
increases in occupancy levels could have little impact on the Company's cash
flows or could actually reduce cash flow if the incremental business is not sold
at sufficiently high average room rates.
During the quarter ended March 31, 1999, the Company received payment of $5
million on a note due from FelCor. FelCor executed an additional note to the
Company of $1.3 million during the period. The $5.4 million balance of the
FelCor Notes are due upon 5 days' demand and can be used by the Company for
working capital or other purposes.
The $40 million of commitments under the Credit Facility may be used for working
capital and other general corporate purposes. Additionally, a sub-limit of up to
$20 million of such commitments is available to issue letters of credit to
secure the Company's obligations under the leases with FelCor and other owners,
subject to the reduction of such sub-limit to reflect the Company's achievement
of liquid net worth requirements related to such leases. Concurrently with the
Spin-off, a letter of credit for $20 million was issued to FelCor to secure the
Company's obligations under the leases. This amount may be adjusted from time to
time pursuant to the liquid net worth requirements described above. By March 31,
1999, the letter of credit amount required under the leases had been reduced to
$10.3 million.
The Company is actively pursuing opportunities for growth and anticipates adding
to its leasehold and management portfolio, both through its relationship with
FelCor, as well as working with other property owners who could benefit from the
Company's services. The Company began management of the Hampton Inn in Sault St.
Marie, Michigan in March 1999. The Company has previously announced agreements
to manage three Hilton Garden Inns and a 265-room upscale Hilton Hotel, all of
which are under development. The first of these properties, a Hilton Garden Inn
in Round Rock (Austin), Texas, is scheduled to open in October 1999. The
remaining three properties are scheduled to open in 2000.
It is possible that some new management contracts or leases could require a
small capital investment on the part of the Company. The Company may also
purchase hotel leases or management contracts from third parties. If such an
investment is necessary, the Company believes it has adequate capital resources
including cash on hand, availability under the Credit Facility and the FelCor
Notes to fund these opportunities for the immediate future. The Company acquired
a 15% joint venture interest and the management of the Cambridge Inn in
Cambridge, Massachusetts in January 1999. The Company's initial investment in
the joint venture was approximately $645,000.
The Company is continuously exploring opportunities for increasing efficiency at
the hotels and the corporate office. Some of these opportunities could require
small capital investments by the Company to achieve the targeted savings, such
as the installation of energy-saving devices throughout the leased
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hotels during 1999 and the development and installation of the Company's wide
area network which will improve productivity and ease communication between the
corporate office and the hotels. The Company believes that it has adequate
capital resources to fund its growth opportunities for the immediate future.
YEAR 2000 READINESS
Since the Company last reported on the status of its Year 2000 Readiness
Program, it has completed several pilot site implementations, during which it
did not encounter any significant problems. It has also completed the testing
phase. Full implementation of the remedy process is underway and the Company
anticipates completion in November 1999.
The Company has also completed its evaluation of the non-information technology
systems, which use embedded chip technology. No material embedded system issues
were identified for any of the critical systems at the hotels. Further, the
Company has conducted an analysis of potential problems which could arise from
inputting the September 9, 1999 date, and has not discovered any significant
risks associated with this date.
Costs
The Company has prepared and presented budgets for the remediation of
non-compliant systems to its property owners, and each has been approved. Since
the last report, there has been no material change in the cost to the Company.
Risks
No new risks have been identified by the Company.
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PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRISTOL HOTELS & RESORTS
Date: May 14, 1999 By /s/ John D. Bailey
---------------------------------------
John D. Bailey
Vice President, Controller and Chief
Accounting Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.